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Reseller Market ROI vs. End User ROI

Posted on 09 February 2014 by Andrei

If you’re selling a domain on the reseller market and double your money, you did well. Yet as strange as it may seem, the same thing cannot be said if your business model revolves around passive end user sales.

Why? I’ll try to explain.

Reseller market sales are for the most part either a way to generate quick liquidity whenever necessary or a business model that involves a very high turnover rate if we’re talking about domain flippers.

In the first situation, reseller market sales aren’t a business model. They’re only something you might resort to every once in a while if you need additional liquidity. Therefore, in some cases, even breaking even is good enough if you can put that capital to better use elsewhere.

In the second situation, where your business model revolves around reseller market sales (for example, if you’re a flipper), your turnover rate will most likely be quite high and therefore, the business model would work remarkably well if you’re able to constantly double your money.

When it comes to business models which involve passive end user sales though, things are a bit more tricky.

Why?

Simply because the turnover rate will be lower.

A lot lower.

Therefore sure, doubling your money on a sale may seem great but what about the costs required to renew your portfolio?

Let’s go with an overly simplified example by assuming you own 100 domains at an average acquisition cost of $100 each and a renewal cost of $10 each.

Keeping your domains will cost $1,000 for the entire portfolio each year.

Let’s say your turnover rate would be 2%.

In other words two sales per year.

Let’s also assume that for each sale, you doubled your money ($100*2).

The result? You lose money each and every year.

It would take 10 sales (remember, the acquisition cost was $100 per domain) just to cover your renewal costs and let’s be realistic, a 10% turnover rate for business models involving passive end user sales would be extremely high.

On the one hand, your return may seem decent as far as those two sales are concerned but what you should care about is the overall result when it comes to your portfolio and after drawing the line, you’d come to the conclusion that you lost money.

The conclusion?

Don’t just look at the ROI exclusively, always analyze it based on the particularities of the business model you’ve chosen.

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